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SAN MIGUEL CORPORATION v. ABALLA et al. G.R. No. 149011. June 28, 2005. Carpio-Morales, J.

Facts: SMC and Sunflower Multi-purpose Cooperative entered into a one-year Contract of Services commencing on January 1, 1993, to be renewed on a month to month basis until terminated by either party. In the contract, Sunflower undertook, as an independent contractor, to perform certain services for SMC, like janitorial services and harvesting/shrimp receiving and sanitation, by providing the necessary personnel, tools and equipment. The contract expressly stipulates that no employer-employee relationship exists between SMC and the members/workers that Sunflower may employ for the purposes of the contract. Moreover, it categorically states that it is Sunflower, not SMC, which shall have entire charge, control and supervision of the work and services agreed upon. The extent of control of SMC is supposedly limited only to the result to be accomplished by the work or services, and does not extend to the means of carrying on the work or service. Pursuant to the contract, Sunflower engaged private respondents to render services at SMCs Bacolod Shrimp Processing Plant. The respondents worked from 1993 until September 11, 1995. On July 1995, respondents filed a complaint before the NLRC praying to be declared as regular employees of SMC, claiming for benefits and privileges enjoyed by SMC rank and file employees. On September 15, 1995, SMC closed its Bacolod Shrimp Processing Plant allegedly because of serious business losses. Respondents consequently amended their complaint to include illegal dismissal as additional cause of action. The Labor Arbiter ruled in favor of SMC, finding that Sunflower is an independent contractor and the contract it has with SMC is legitimate job contracting. NLRC sustained this finding. CA reversed and ordered SMC to pay the respondents money claims. Issues: 1. Whether the petition is fatally defective for lack of certification of forum shopping. 2. Whether Sunflower is a labor only contractor or a legitimate independent contractor 3. Whether an employer-employee relationship existed between SMC and the 97 respondents 4. If yes, whether the 97 respondents should be considered regular employees of SMC. 5. Whether the closure of the Bacolod Shrimp Processing Plant and the subsequent termination of respondents services was justified. Held: 1.) NO. Procedural rules were liberally applied in this case for compelling reasons, in order not to defeat substantive justice - HLC Construction and Development Corporation v. Emily Homes Subdivision Homeowners Association - In cases where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs, acting as representative, to sign the certificate provided that xxx the plaintiffs share a common interest in the subject matter of the case or filed the case as a collective, raising only one common cause of action or defense. - Liberal construction of the rule on the accomplishment of a certificate of nonforum shopping in the following cases: (1) where a rigid application will result

in manifest failure or miscarriage of justice; (2) where the interest of substantial justice will be served; (3) where the resolution of the motion is addressed solely to the sound and judicious discretion of the court; and (4) where the injustice to the adverse party is not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed. 2.) Sunflower is a labor-only contractor. There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the contractor shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. - Statutory basis: Art. 106, LC - Under the LC, there are two types of work contracting: labor-only and legitimate job-contracting. In legitimate job-contracting, there exists a trilateral relationship under which there is a contract for a specific job, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are three parties involved in these arrangements: the principal which decides to farm out a job or service, the contractor or subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish such job, work or service. - Labor-only contracting refers to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following elements are present: o The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal, or o The contractor does not exercise the right to control over the performance of the work of the contractual employee. - Employer-employee relationship in labor-only and job-contracting: Labor-only contracting is prohibited by law because it is a circumvention of the provisions of the Labor Code. Hence, in labor-only contracts, the law creates an employee-employer relationship between the principal and the workers so that the former shall be liable to the latter as if the latter were directly employed by him. Contra: In legitimate labor contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their wages. The principal employer becomes jointly and severally liable with the job contractor, only for the payment of the employees wages whenever the contractor fails to pay the same. Other than that, the principal employer is not responsible for any claim made by the employees. - It follows that there are two types of contractors: labor-only contractors and legitimate independent contractors. The test to determine the existence of independent contractorship is whether one claiming to be an

independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work. - Here, it is clear that Sunflower is not an independent contractor. It has no substantial capitalization to enable it to perform the services independently. It was not shown that it dealt with entities other than SMC. During the whole time the contract for services was in force, Sunflower did not own a single machinery, equipment, or working tool used in the processing plant. Everything was owned and under control by SMC. Sunflowers participation is limited to recruiting employees to work for SMCs Shrimp Processing Plant. In fact, it seemed to exist solely for this purpose, as it ceased existence when SMCs plant was closed. 3.) YES. Despite the clear intent in the contract to avoid an employer-employee relationship, such relationship existed between SMC and the private respondents herein. The existence of an employer-employee relationship is a question of law; it is not a matter that contracting parties can dictate, by the mere expedient of a unilateral declaration in a contract. The language of a contract is not determinative of the parties relationship; rather it is the totality of the facts and surrounding circumstances of the case. - Employer-employee relationship exists because Sunflower is a mere laboronly contractor (see discussion above). - SMC exercised the power of control and supervision over respondents. And control of the premises in which private respondents worked was by SMC. 4.) YES. Under the law, there are two kinds of regular employees, namely: (1) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. The respondents who were engaged in shrimp processing tasks should be deemed regular employees of SMC from the start and as such are entitled to all the benefits and rights appurtenant to regular employment. On the other hand, respondents engaged in janitorial and messengerial duties should be deemed to have acquired regular status only after rendering one-year service, pursuant to Art.280, LC. They are entitled to differential pay only from the day immediately following their first year of service. - The distinction is necessary to determine what kind of benefits they are entitled to. - Janitorial and messengerial services, although considered directly related to SMCs aquaculture business, is deemed unnecessary in the conduct of its principal business; hence, the distinction into two groups among the respondents 4.) YES. The dismissal of the employees pursuant to a valid retrenchment was justified. - Retrenchment to prevent losses is a management prerogative consistently recognized and affirmed by the Court. It is, however, subject to faithful compliance with the substantive and procedural requirements laid down by law and jurisprudence. - Requirements for a valid retrenchment: For retrenchment to be considered valid the following substantial requirements must be met: (a) the losses expected should be substantial and not merely de minimis in extent; (b) the substantial losses apprehended must be reasonably imminent such as can be

perceived objectively and in good faith by the employer; (c) the retrenchment must be reasonably necessary and likely to effectively prevent the expected losses; and (d) the alleged losses, if already incurred, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. - SMC was able to prove serious business losses in its aquaculture department, hence justifying retrenchment of its employees. - However, although the retrenchment was itself valid, the means of carrying it out was not. For termination due to retrenchment to be valid, however, the law requires that written notices of the intended retrenchment be served by the employer on the worker and on the DOLE at least one (1) month before the actual date of the retrenchment, in order to give employees some time to prepare for the eventual loss of their jobs, as well as to give DOLE the opportunity to ascertain the verity of the alleged cause of termination. Here, respondents were merely verbally informed one day before they were dismissed from work. - Court ruled that, where the dismissal is based on an authorized cause under Article 283, LC (e.g. retrenchment) but the employer failed to comply with the notice requirement, the sanction should be stiff as the dismissal process was initiated by the employers exercise of his management prerogative, as opposed to a dismissal based on a just cause under Article 282 affected with the same procedural infirmity, where the sanction to be imposed upon the employer should be tempered as the dismissal was, in effect, initiated by an act imputable to the employee. - In light of this rule, Court awarded nominal damages of P50,000 each to each of the private respondents in this case. Disposition: CA decision AFFIRMED with MODIFICATION. SMC and Sunflower declared solidarily liable to pay each private respondent differential pay from the time they became regular employees up to the date of their termination; separation pay equivalent to at least one (1) month pay or to at least one-half month pay for every year of service, whichever is higher; and ten percent (10%) attorneys fees based on the herein modified award. Petitioner San Miguel Corporation is further ORDERED to pay each private respondent the amount of P50,000.00, representing nominal damages for non-compliance with statutory due process. The award of backwages is DELETED. Kay Products, Inc. v. CA G.R. No. 162472. July 28, 2005. Callejo, Sr. Facts: Employees of KPI had a meeting for the purpose of forming a union within their workplace. Among those in attendance were private respondents Myrna Abila, Flordeliza Morante, Fe Regidor, Rowena Escuadro and Jeofrey del Valle, who were employed by KPI sometime around July to August 1999. When management got wind of this plan to form a union, it announced that said employees were to be transferred to an employment agency with which it has a manpower contract, the Gerrico Resources & Manpower Services, Inc. (GRMSI). Hence on July 14, 2000, KPI directed all employees concerned to sign handwritten resignation letters preparatory to their employment with GRMSI. The employees continued to report for work in the KPI factory. Later, KPI said that GRMSI had been dissolved and that

there was a need for them to sign separate contracts with RCVJ, another corporation with which KPI had a manpower contract. This time, some employees refused to sign any contract with RCVJ. In the meantime, they succeeded in organizing their union. On August 25, 2000, they filed a complaint for ULP, underpayment of salaries, and failure to classify them as regular employees. On September 4, the employees were ordered to take a twoweek leave without pay. When they tried to report back for work, they were told that they were no longer KPI employees since they have tendered their resignation letters in July. Employees amended their complaint to illegal dismissal. They contend that the resignation letters were obtained through fraud and intimidation. Procedural: KPI won at LA, NLRC. CA reversed and found for employees, saying they were regular employees, and as such, enjoyed security of tenure. With security of tenure, they can only be removed for just or authorized cause as prescribed in LC. Issues: 1.) Whether the resignation letters were voluntarily executed. 2.) Whether respondents were regular employees of KPI. 3.) Whether respondents were illegally dismissed. Held: 1.) NO. The resignation letters were obtained thru coercion, threat and intimidation. - The contents of the alleged handwritten resignation letters were dictated by the Director and Personnel Manager of the respondent company. - It is inconceivable that a worker who has already attained a regular status in his employment would opt to be transferred to another employment agency, there to start work anew work that would relegate him to a mere casual laborer or employee. - Obviously, petitioners were not given any other choice by management, but to agree to their transfer to Gerrico Resources, lest they lose their only means of livelihood. Considering that petitioners are ordinary sewers of respondent company, the fear of losing their jobs cannot but be a serious, legitimate concern. - The fact that petitioners in this case failed to indicate in their resignation letters the phrase under protest or with reservations is of no moment. Petitioners were ordinary factory workers who could not and should not be expected to know the legal import or significance of some such phrase as under protest or with reservations. - Additionally, private respondents claim that petitioners voluntarily resigned is belied by the fact that the latter immediately filed a complaint for regularization with the NLRC upon their supposed transfer to the Gerrico Resources. In Molave Tours v. NLRC, it was also held that the voluntariness of a resignation is negated by the filing of a complaint for illegal dismissal. 2.) YES. Respondents were regular employees of KPI. - Art. 280 of Labor Code: The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed is seasonal in

nature and the employment is for the duration of the season. An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists. - Respondents have been working for more than a year with KPI before they were told they were no longer employees on Sept. 2000. Hence, they are regular employees falling under the second category. - While the actual regularization of these employees entails the mechanical act of issuing regular appointment papers and compliance with such other operating procedures as may be adopted by the employer, it is more in keeping with the intent and spirit of the law to rule that the status of regular employment attaches to the casual worker on the day immediately after the end of his first year of service. To rule otherwise, and to instead make their regularization dependent on the happening of some contingency or the fulfillment of certain requirements, is to impose a burden on the employee which is not sanctioned by law. 3.) YES. Respondents being regular employees, they are entitled to security of tenure and may only be validly terminated from service upon compliance with the legal requisites for dismissal (i.e. either just cause or authorized cause). Because they were illegally dismissed, they are entitled to reinstatement conforme to the provisions of Art.279, with full backwages and without loss of seniority rights. An illegally dismissed employee who, in contemplation of the law, never left his office, should be granted the compensation which rightfully belongs to him from the moment he was unduly deprived of it up to the time it was restored to him; the backwages to be awarded should not be diminished or reduced by earnings derived by the illegally dismissed employee elsewhere during the term of his illegal dismissal. Disposition: IN VIEW OF THE FOREGOING DISQUISITIONS, the petition is hereby DENIED. The Court of Appeals Decision and Resolution in CA-G.R. SP No. 73028 are hereby AFFIRMED WITH MODIFICATION. Petitioners Kay Products, Inc. and Kay Lee are ORDERED to reinstate private respondents Myrna Abila, Flordeliza Morante and Fe Regidor, and to pay, jointly and severally, their full backwages without deductions from the time of dismissal to actual reinstatement; if reinstatement is no longer practicable or feasible, in lieu thereof, to pay, jointly and severally, separation pay of one (1) month salary for every year of their employment, with a fraction of at least six (6) months being considered as one (1) year. In addition thereto, petitioners are also hereby ordered, jointly and severally, to pay the amount of Ten Thousand Pesos (P10,000.00) as moral damages and Five Thousand Pesos (P5,000.00) as exemplary damages to each of the private respondents. SO ORDERED. Brent School v. Zamora G.R. No. L-48494. February 5, 1990. Narvasa J. FACTS: Private respondent Doroteo R. Alegre was engaged as athletic director by petitioner Brent School, Inc. at a yearly compensation of P20,000.00. The contract fixed a specific term for its existence, five (5) years, i.e., from July 18, 1971, the

date of execution of the agreement, to July 17, 1976. Subsequent subsidiary agreements dated March 15, 1973, August 28, 1973, and September 14, 1974 reiterated the same terms and conditions, including the expiry date, as those contained in the original contract of July 18, 1971. On April 20,1976, Alegre was given a copy of the report filed by Brent School with the Department of Labor advising of the termination of his services effective on July 16, 1976. The stated ground for the termination was "completion of contract, expiration of the definite period of employment." Although protesting the announced termination stating that his services were necessary and desirable in the usual business of his employer, and his employment lasted for 5 years - therefore he had acquired the status of regular employee - Alegre accepted the amount of P3,177.71, and signed a receipt therefor containing the phrase, "in full payment of services for the period May 16, to July 17, 1976 as full payment of contract." The Regional Director considered Brent School's report as an application for clearance to terminate employment (not a report of termination), and accepting the recommendation of the Labor Conciliator, refused to give such clearance and instead required the reinstatement of Alegre, as a "permanent employee," to his former position without loss of seniority rights and with full back wages. ISSUE: Whether fixed period employment is legal/ Whether the Labor Code has prohibited fixed period employment or employment with a term. HELD: NO. RATIO: The language of Art. 280 notwithstanding, fixed term employment is not prohibited under the Labor Code. Since the entire purpose behind Art. 280 is to prevent circumvention of the employees right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer only to agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter. Hence, the Court here established the twofold criteria for fixed term employment to be valid: 1. The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any force, duress, or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or 2. It satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms with no moral dominance exercised by the former or the latter. REASONING:

- Before the Labor Code, there was no doubt about the validity of term employment. It was impliedly but clearly recognized by the Termination Pay law, RA 10521 - The Civil Code, which has always recognized, and continues to recognize, the validity and propriety of contracts and obligations with a fixed or definite period, and imposes no restraints on the freedom of the parties to fix the duration of a contract, whatever its object, be it specie, goods or services, except the general admonition against stipulations contrary to law, morals, good customs, public order or public policy. Under the Civil Code, therefore, and as a general proposition, fixed-term employment contracts are not limited, as they are under the present Labor Code, to those by nature seasonal or for specific projects with pre-determined dates of completion; they also include those to which the parties by free choice have assigned a specific date of termination. -(theres a long, long history about the changes of provisions in the labor code, showing how fixed period employment became less and less acceptable...) - Where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. - But where no such intent to circumvent the law is shown, where the reason for the law does not exist, e.g., where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non, would an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement come within the scope of Article 2802 which admittedly was enacted "to prevent the circumvention of the right of the employee to be secured in (his) employment?" - A280LC, under a narrow and literal interpretation would appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or avoided. The law must be given a reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employer's using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by lopping off the head. - Familiar examples of employment contracts which may be neither for seasonal work nor for specific projects, but to which a fixed term is essential: overseas employment contracts to which, the concept of regular employment will all that it implies does not appear ever to have been applied, Article 280 of the Labor Code
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In cases of employment, without a definite period, in a commercial, industrial, or agricultural establishment or enterprise, the employer or the employee may terminate at any time the employment with just cause; or without just cause in the case of an employee by serving written notice on the employer at least one month in advance, or in the case of an employer, by serving such notice to the employee at least one month in advance or one-half month for every year of service of the employee, whichever is longer, a fraction of at least six months being considered as one whole year. The employer, upon whom no such notice was served in case of termination of employment without just cause, may hold the employee liable for damages. The employee, upon whom no such notice was served in case of termination of employment without just cause, shall be entitled to compensation from the date of termination of his employment in an amount equivalent to his salaries or wages corresponding to the required period of notice.

Art. 280. Regular and casual employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of

the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season. An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists.

not withstanding; appointments to the positions of dean, assistant dean, college secretary, principal, and other administrative offices in educational institutions, which are by practice or tradition rotated among the faculty members, and where fixed terms are a necessity, without which no reasonable rotation would be possible. Despite the provisions of Article 280, Policy, Instructions No. 8 of the Minister of Labor implicitly recognize that certain company officials may be elected for what would amount to fixed periods, at the expiration of which they would have to stand down, in providing that these officials," . . . may lose their jobs as president, executive vice-president or vice-president, etc. because the stockholders or the board of directors for one reason or another did not re-elect them." RULING: Respondent Alegre's contract of employment with Brent School having lawfully terminated with and by reason of the expiration of the agreed term of period thereof, he is declared not entitled to reinstatement. The employment contract between Brent School and Alegre was executed on July 18, 1971, at a time when the Labor Code of the Philippines (P.D. 442) had not yet been promulgated. At that time, the validity of term employment was impliedly recognized by the Termination Pay Law, R.A. 1052, as amended by R.A. 1787. At that time, it was perfectly legitimate for them to include in it a stipulation fixing the duration thereof. As explained above, even the passing of Labor Code, the explicit language of Art. 280 notwithstanding, does not absolutely prohibit fixed term employment as illegal. DISPOSITION: WHEREFORE, the public respondent's Decision complained of is REVERSED and SET ASIDE. Respondent Alegre's contract of employment with Brent School having lawfully terminated with and by reason of the expiration of the agreed term of period thereof, he is declared not entitled to reinstatement and the other relief awarded and confirmed on appeal in the proceedings below. No pronouncement as to costs. SO ORDERED. Labayog v. M.Y. San Biscuits - Same doctrine: fixed employment contracts valid as long as it was not entered into to circumvent security of tenure Cielo v. NLRC - This is an example of a fixed employment contract struck down by the court as invalid because its only aim is to circumvent security of tenure. Caparoso v. CA The Court thus laid down the criteria under which fixed-term employment could not be said to be in circumvention of the law on security of tenure, thus: 1. The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any force, duress, or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or 2. It satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms with no moral dominance exercised by the former or the latter.

Ahhrghh Guys Im so sorry. Labor is killing me. I seriously do not know how to study for this. Really, really sorry

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